Bush to Boards on CEO Pay: Get Control, Get Transparent, and Get Fair

Late last week, President George W. Bush met with the editors of the Wall Street Journal. (subscription required) Tucked inside his message about competing in the global economy and pursuing a free-trade agenda was a not so subtle admonishment to boards to conduct better oversight of executive pay packages. 

"Do I think some of the salaries are excessive at the top? I do," the President said. "I don't think it's the role of government to regulate salary. But I do believe it's a role of boards of directors to be very transparent with shareholders about these different packages, the employment packages that these executives get. ‘Excessive executive compensation’ just sends a signal of unfairness, and people in America want...fairness," Bush added that he has raised the issue with both Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox.

While Bush is acknowledging some excessive pay, the emphasis is clearly on keeping government regulation out of pay schemes and increasing transparency, something the SEC is already doing with its new compensation disclosure rules for proxy statements.

"I don't think it's the role of government to regulate salary. But I do believe it's a role of boards of directors to be very transparent with shareholders about these different packages, the employment packages that these executives get. ‘Excessive executive compensation’ just sends a signal of unfairness, and people in America want...fairness," --President George W. Bush

Bush comments garnered headlines in newspapers across the nation, but it was not the first time that he has addressed executive pay, nor was it the strongest language he has used on the topic. In late January, during a stop in Manhattan that included a visit to the trading floor of the New York Stock Exchange, he warned that, "America's corporate boardrooms must step up to their responsibilities. You need to pay attention to the executive compensation packages that you approve. You need to show the world that American businesses are a model of transparency and good corporate governance."

Again he called for transparency, which at that time the SEC was already addressing. He also hit on his message that politicians should be kept out of the pay-setting process. "Government should not decide the compensation for America's corporate executives, but the salaries and bonuses of CEOs should be based on their success at improving their companies and bringing value to their shareholders," he told the crowd of business people at a gathering given by the Association for a Better New York.

In some ways, Bush has backed off his strongest criticism of CEO pay, which came in October of 2006, when, during an interview with CNBC, he said he was “astounded” by the size of some executive pay packages. "These compensation packages can get out of hand," he said during the interview. While incentives for performance are necessary, he said, companies should "make sure the incentive pay is rational."